Turn Data into Dollars: Green Industry Metrics
In a perfect world, you would have a team of dedicated data scientists at your disposal to offer you the best insights on how to run your company. Unfortunately, that is just not reality. However, that doesn’t mean you should ignore your company data altogether. Let’s discuss four areas that every green business owner should be tracking.
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Sales Revenue
Sales are the most important part of your business. Tracking your monthly and yearly revenue is essential for gauging how well your company is doing. As you follow sales, compare your growth month-over-month (MoM) and year-over-year (YoY).
Percent growth = (Period 2 – Period 1) / Period 1 * 100
Month 1 – $1200
Month 2 – $1500
((1500 – 1200)/1200)*100 = 25% Sales Revenue Growth MoM
Each factor needs consideration when tracking sales revenue. It’s possible that you’re winning a small amount of jobs that are high paying. The inverse could be true. You might be winning many jobs that are mostly low paying. Keep these factors in mind when analyzing your sales data. Sales numbers don’t tell you if you’re efficient, just if you’re bringing in cash.
Net Profit Margins
If sales revenue tells you how productive your team is, net profit margin (NPM) tells you how efficient your team is. Think of net profit margin as your “real” profit margins, because it accounts for all of the expenses that take from your bottom line. When you review NPM, segment the data by each division.
NPM = ((Net Profit) / Revenue )* 100
13.2% = $46,000/$58,000 * 100
For example, let’s pretend that you’re a landscaping company. Imagine installation jobs for the month total $58,000 in revenue. You also have operating expenses, taxes, equipment, and payroll totaling $46,000 in costs that are all allocated to design-build.
First, get your net profit. $53,000 (revenue) – 46,000 (total expenses) = $7,000 (net profit). Now divide $7000 by $53,000. Multiply by 100 to get a percentage of 13.2%.
Why calculate net profit and not just gross profit? It’s tempting because gross profit margins (GPM) are easier to calculate and understand. It’s also easier to compare across companies. Be wary, though. Landscape sales expert Jeffrey Scott tells clients that GPM is too subjective and doesn’t tell the whole story. He’s finding that many business owners are surprised that segments they believed were their most profitable aren’t when they compare NPM.
Whether you’re in a landscape, tree care, or any other green industry business, knowing your net profit margin will help you steer clear of potential pitfalls and help you coordinate your efforts to be the most efficient.
Why calculate net profit and not just gross profit? It’s tempting because gross profit margins (GPM) are easier to calculate and understand. It’s also easier to compare across companies. Be wary, though. Landscape sales expert Jeffrey Scott tells clients that GPM is too subjective and doesn’t tell the whole story. He’s finding that many business owners are surprised that segments they believed were their most profitable aren’t when they compare NPM.
Whether you’re in a landscape, tree care, or any other green industry business, knowing your net profit margin will help you steer clear of potential pitfalls and help you coordinate your efforts to be the most efficient.
Customer Relationships
Long-term success for every company hinges on how their customers perceive them. Many landscaping and tree care companies don’t track their customer’s satisfaction, but they should. Data can tell you if you’re delighting customers and if they’re enjoying working with you.
A single metric can’t tell the whole story, but a collection of metrics can give you a sense of how customers perceive your relationship. Here are two metrics you can use to this:
Customer Satisfaction Score (CSAT)
All of us have probably filled out a survey that asked, “On a scale from 1-10, how satisfied are you with your customer experience.” This practice is done heavily in the software, retail, and foodservice, but can apply to any field. After jobs are completed, send an automated email asking customers to rate you in a short survey. This allows you to ask customers who had a poor experience how you can improve, and customers who rated you highly where you excelled. Using this information, you can fix your mistakes and play on your strengths to win more jobs.
After receiving feedback from your customers, you should have action items for both high and low scoring reviews. Each scenario can be used to leverage customers for your business. Some businesses ask all of their customers to leave reviews on Google, but this has unintended consequences. First, many customers are lukewarm and won’t care enough to leave a review. Secondly, the customers who will respond have either a very poor experience or a very positive one. What will occur is you will get a mix of very positive and very negative reviews that end up lowering your overall rating and leave potential customers confused by the significant deviation in ratings.
Positive Reviews
Customers that give you a CSAT score of 8-10 can be used to promote the business. Don’t ignore customers that are happy with you because there aren’t any issues; engage with them! The power of positive referrals can’t be understated. Ask this segment of customers if they would kindly leave you a review on Google or any other search tool you use. You want to put your best foot forward for potential customers. Don’t be afraid to use incentives, such as discounts on their next bill if they leave a positive Google review and send you a screenshot.
Negative Reviews
Occasionally every business will receive a negative review. The worst thing you can do is to ignore it. The only thing more powerful than a positive review is a negative one. Negative customers are more likely to tell their friends and family about what a terrible experience they had. You should do everything, within reason, to fix the situation.
First, send customers a personalized written acknowledgment, either via text or email, sympathizing and apologizing for giving them a bad experience. Keep it short and sweet. Thank them for the feedback and then offer solutions to make things right. This can be done by giving them a discount on future service, or by coming out free-of-charge to fix the mistake. If you believe your company was truly not at fault, simply follow the first step of reaching out and apologize for the bad experience.
Customer Retention Rate (CRR)
Customer retention rate is a way to calculate how many customers leave or stay with the company over time. A high retention rate means that your customers are loyal and your customer service is adequate or exceptional. A low retention rate indicates that your customers aren’t satisfied, and you need to change your practices to meet their needs.
CRR = ((E-N)/S)*100
E = Current Customers, N = New customers since last period, S = Customers at the beginning of the period.
1000 current customers, 82 new customers in the last month, 985 customers at the beginning of last month
CRR = ((1000-82)/985) * 100
CRR = 98.2%
Once you have calculated your baseline CRR for the past year or past month, you need to check back each month and year to track progress over time. If you want to focus on increasing your retention rate, you should analyze how well you are marketing to current customers, not just marketing to acquire customers. Also, review your customer service. Combine your CRR with your customer satisfaction score to see how customers perceive you and find weak points in your customer service model.
Field Labor Ratio
Finally, you’ll want to keep a close eye on your labor costs. Specifically your field labor ratio (FLR). To find your FLR, divide labor costs by net sales over a given period and multiply by 100.
For example, your labor cost for a single job was $3000, and you were paid $10,000 for it. Divide $3000/$10000 * 100 = 30%. This can tell you how efficient you are with your workforce. As the ratio gets closer to 0%, the less efficient you are. This could affect your decisions going forward in a few ways. If your ratio is too low, you’ll want to evaluate the size of your workforce on each job. You’ll also want to look at your net profit margins from jobs to see if you should be putting your workforce towards other areas of your business.
FLR = (Labor Costs/Net Sales) * 100
Labor costs = $3000, Net Sales = $10,000
30% = ($3000/$10,000) * 100
For example, your labor cost for a single job was $3000, and you were paid $10,000 for it. Divide $3000/$10000 * 100 = 30%. This can tell you how efficient you are with your workforce. As the ratio gets closer to 0%, the less efficient you are. This could affect your decisions going forward in a few ways. If your ratio is too low, you’ll want to evaluate the size of your workforce on each job. You’ll also want to look at your net profit margins from jobs to see if you should be putting your workforce towards other areas of your business.
Conclusion
Data tells a story. Each metric is a page in that story. Don’t just read a single chapter; you need the whole book. Once you know where your business stands, only then can you actually make informed decisions, find a system for collecting and analyzing data. It doesn’t have to be complex, but the time and effort are worth it.